7 Types of Employment Contract in Malaysia You Need to Know

An employment contract is a legally binding agreement between an employer and employee defining job scope, pay, benefits, and duration.

In Malaysia, the Employment Act 1955 applies to all employees. Certain sections do not apply to employees earning above RM4,000/month or to domestic employees, per the amended First Schedule.

However, even higher-income employees follow similar principles under the Contracts Act 1950.

Contracts may be written, verbal, or implied through consistent work arrangements, but a written version is always best for legal protection. 

Why Understanding Employment Contracts Matters

Hybrid roles, freelance gigs, and flexible contracts are now mainstream and the standard 9-5 job is no longer the dominant model.

But this flexibility also comes with more complexity. Each type of employment contract carries different rules about pay, benefits, and legal protection.

Each contract type sets different rules for:

• Pay and benefits (EPF, SOCSO, EIS contributions)
• Leave entitlements (annual, sick, or maternity leave)
• Termination rights and compensation

Knowing which category applies to employees determines they are protected under Malaysian labour law.

• For employers, understanding contract types is about compliance and risk management.
• For employees, knowing your contract type helps you understand where you stand on employee benefits.

Read more: Notice Period in Malaysia: How Long You Need Before Resigning?

The 7 Types of Employment Contracts in Malaysia

1. Permanent Employment Contract

Permanent contracts offer continuous employment with full statutory benefits and no fixed end date.

Employees under this contract are entitled to annual leave, medical benefits, EPF, SOCSO, and EIS. Termination requires written notice as stated in the contract or under Section 12 of the Employment Act 1955.

Example: A marketing executive hired on a long-term basis without a project end date is under a permanent contract.

Highlights:

• Offers maximum job stability.
• Subject to company policies and standard notice periods.
• Can only be ended through resignation, retirement, or lawful termination.

2. Fixed-Term Employment Contract

Fixed-term contracts specify a defined start and end date, often for project-based or seasonal work.

When the term ends, the employment automatically ceases unless renewed. However, repeated renewals may be viewed as continuous employment by the Industrial Court.

Example: A lecturer hired for a 12-month teaching period or a contractor for a specific construction phase.

Highlights:

• Must clearly state the contract duration.
• Renewal terms must be transparent.
• Benefits apply as long as the contract meets statutory thresholds.

3. Part-Time Employment Contract

Part-time contracts involve fewer working hours but still provide legal protection under the Employment (Part-Time Employees) Regulations 2010.

These workers receive benefits like annual leave and overtime pay on a prorated basis. The contract must include hourly rates, work schedules, and rest days.

Example: A retail assistant working 20 hours weekly at a shopping mall.

Highlights:

• Ideal for flexible or shared roles.
• Benefits calculated proportionally.
• If the engagement exceeds one month, a written contract is mandatory under EA s.10; for shorter engagements, written terms are strongly recommended.

4. Probationary Employment Contract

Probationary contracts serve as a trial period (typically three to six months) before confirming permanent status.

Probationers have the same statutory rights as confirmed employees, including protection from unfair dismissal. Employers must provide performance feedback before deciding on confirmation or extension.

Example: A new HR officer undergoes a six-month probation before confirmation.

Highlights:

• Common duration: 3–6 months.
• Must state evaluation criteria.
• Termination requires valid reasons and notice.

5. Freelance or Independent Contractor Agreement

Freelancers work under a “contract for service,” not a “contract of service.” There’s a difference.

They are not employees and therefore not covered by EPF, SOCSO, or the Employment Act.

These contracts suit professionals providing specialised services, like designers or consultants. Payments are made per project or milestone, and tax obligations fall on the individual.

Example: A web designer contracted to revamp a company’s website over two months.

Highlights:

• No statutory employment benefits.
• Flexible, project-based structure.
• Clear scope, deliverables, and fees required.

6. Apprenticeship or Internship Contract

Apprenticeship contracts focus on skill development and training, often with allowances instead of full salaries.

Section 2 of the Employment Act 1955 defines an apprentice as someone under formal training for up to 24 months. Internships, though shorter, follow similar structures for students or graduates gaining exposure.

Example: A technical trainee in a manufacturing plant for 18 months under an apprenticeship programme.

Highlights:

• Must specify duration, training scope, and allowance.
• Employers must ensure safety and supervision.
• Apprentices may transition to full-time roles upon completion.

7. Casual or Temporary Employment Contract

Temporary contracts are for short-term roles such as events, seasonal demand, or covering absent staff.

These workers may not receive full statutory benefits, but employers must still comply with minimum wage and overtime regulations.

Example: An event crew member hired for a two-week exhibition or warehouse helper during peak season.

Highlights:

• Usually short-term (days to months).
• Suitable for urgent or ad-hoc manpower needs.
• Benefits depend on duration and company policy.

Read more: Step-by-Step Retrenchment Guide for Malaysian Employers

How to Choose the Right Contract Type

Choosing the right employment contract protects both parties and compliance under Malaysian labour law. 

For Employers: Matching Contract Types to Business Needs

The right contract keeps your hiring legal, cost-efficient, and sustainable.

Before drafting an agreement, ask yourself these questions:

1. What is the nature of the role?

• Project-based or seasonal? → Choose a Fixed-Term Contract.
• Ongoing operational role? → Go with a Permanent Contract.
• Short replacement or ad-hoc help? → Opt for a Temporary Contract.

2. How long do you need the worker?

• Short-term (days or weeks) → Casual or Temporary.
• Medium-term (months) → Fixed-Term.
• Long-term (indefinite) → Permanent or Probationary leading to Permanent.

3. What obligations apply?

• Confirm EPF, SOCSO, and EIS contributions.
• Check working hours, leave entitlements, and notice periods.
• Include probation terms if assessing suitability.

4. Are you hiring a freelancer or employee?

If you pay per deliverable, do not control hours, and the person uses their own tools, it’s a Freelance Contract (a contract for service).

If you manage their schedule and assign tasks directly, it’s an Employment Contract (a contract of service).

Reference for Employers

For Employees: Knowing Which Contract Fits You

Understanding your contract type helps you plan your income, benefits, and job security.

When reviewing or signing a new job offer, consider these:

1. How stable do you want your role to be?

• Looking for long-term stability and benefits? → Choose a Permanent Contract.
• Testing out a company first? → Start with a Probationary Contract.
• Working while studying or freelancing? → A Part-Time or Freelance Contract offers flexibility.

2. What benefits matter most to you?

• Need EPF and SOCSO protection? Go for Permanent or Fixed-Term roles.
• Need flexibility over stability? Freelance or Temporary might suit better.

3. How long can you commit?

• Less than 6 months? → Look for Temporary or Contract-based positions.
• More than a year? → Prefer Fixed-Term or Permanent employment.

4. Are you training or gaining experience?

If you’re a student or new to a field, an Apprenticeship or Internship Contract gives exposure without full employment status.

Reference for Employees

Know The Employment Contract Before You Sign

Regardless if you’re the one hiring new talent or starting a new job, take time to review what’s in writing. Clarity now prevents conflict later.

A fair, well-drafted contract builds trust and keeps both sides aligned from day one.

If your organisation is updating HR policies, issuing press statements, or launching employer-branding campaigns, professional communication matters.

Our digital PR agency firm helps businesses craft compliant, credible, and engaging PR content that aligns with Malaysian labour standards and corporate reputation goals.